People take out life insurance for multiple different reasons. There's a false misconception that you have to be old, ill or the provider for a family to take out life insurance. Experts recommend that everyone, regardless of personal circumstances, should take out a life insurance policy. In fact, the Money Expert recommends everyone have a life insurance policy before the age of 35. After that, health problems seem to take a steep increase.
But then there's the question of what insurance policy to take out and how long it should run. Do you need the insurance policy to run for a set period, or should there be no end date in sight? Well, there are different types of policies that run for different periods. Below, we will help you to decide how long you should maintain your life insurance policy for.
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The Considerations
Before deciding how long your life insurance policy should run for, you might want to consider your circumstances and how these might influence your decision. For example, if you're 25 and decide to take out life insurance cover — which, by the way, is a great age to start looking because you'll find better premiums for younger people — you'd be more inclined to take out a 20–30-year term policy, rather than a five year one.
Taking out a life insurance policy for the benefit of a family brings into question more considerations - such as the point at which you feel your family would be able to cope financially without you - aligning the term endpoint with that estimation. The most common term life insurance policy runs for 20 years, although you can specify that they run for 30+ years.
Not everyone takes out a life insurance policy to cover their families. Some decide to find a policy to cover the mortgage payments, for example. In this instance, it makes sense to look for an insurance policy that lasts for the duration of the mortgage - and pick a date no sooner or later than that.
One final consideration is whether you want standard life insurance or decreasing value life insurance, which directly relates to how long you should consider maintaining a policy. A standard life insurance policy comes with an agreement of a set amount of money that insurers pay to the stated beneficiaries.
A decreasing value life insurance policy means the value of the pay-out decreases as time goes on and your debts, such as a mortgage or motor finance payment, decrease. Naturally, this makes sense. At the start of a life insurance policy, you might have a home worth $200,000 that you'd need covering for. Towards the end of it, you might have paid off the mortgage, and therefore, that financial burden is lifted from your beneficiaries - ergo, they wouldn't need the money for it.
Term VS Whole Life Insurance
That leads us to the debate of term life insurance VS whole life insurance. Term insurance compared to whole life insurance is very different in that term life insurance policies cover you for a set period, and whole life insurance covers you for the duration of your life. Although it may seem pretty self-explanatory on the surface, there are some points to consider.
With a term insurance policy, your beneficiaries will receive a pay out if you pass during the agreed period that your policy runs for. As stated previously, the most common term policy duration is 20 years, although it can run for anywhere between 5 and 30 years, with some insurers going beyond that.
A term life insurance policy makes sense if you are unsure what your life will be like in 10 to 15 years. A 25-year-old might consider taking out a 10-year agreement if they know they want children but aren't sure when. That way, the policy can end in 10 years, and a new, more suitable to that present moment, policy can be arranged.
Whole life insurance is perhaps the more lucrative option because of the cash value attached to the insurance agreement. Basically, a whole life insurance policy covers you should anything happen in your life, whether you be 25 or 95. The cash value side comes in because when you pay your monthly premium, it goes into a tax-free savings account that you can use for retirement, in replacement of personal loans, and emergency funds.
Life Insurance Add Ons
Life insurance is nice — if you can call it that — because there are add ons that provide additional support for you and your loved ones. Commonly referred to as riders, insurance add ons like the return of premium riders allow you to have the premiums paid back to you when the policy runs out. For this example, you could argue that a term insurance policy is better.
Plus, with a term insurance policy, you can sometimes opt for it to auto-renew and take another out right away so it would feel like a whole life insurance policy.
Life insurance almost feels like a necessity if you have beneficiaries you'd like to protect. Policies provide peace of mind because you know they're covered should anything happen to you. Explore the various insurance policies available and consider how long you'd like one to run for.
